Vintech Manufacturing incurs unit costs of $6 ($5 variable and $1 fixed) in maki

ID: 2378448 • Letter: V

Question

Vintech Manufacturing incurs unit costs of $6 ($5 variable and $1 fixed) in making a subassembly part for its finished product. A supplier offers to make 17,000 of the part at $6.30 per unit. If the offer is accepted, Vintech will save all variable costs but no fixed costs.

Prepare an analysis showing the total cost saving, if any, Vintech will realize by buying the part. (If an amount reduces the net income for Increase (Decrease) column then enter with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000). Enter all other amounts in all other columns as positive and subtract where necessary.)

Make
Buy Net Income
Increase
(Decrease) Variable manufacturing costs $ $ $ Fixed manufacturing costs Purchase price Total annual cost $ $ $ Vintech Manufacturing incurs unit costs of $6 ($5 variable and $1 fixed) in making a subassembly part for its finished product. A supplier offers to make 17,000 of the part at $6.30 per unit. If the offer is accepted, Vintech will save all variable costs but no fixed costs. Prepare an analysis showing the total cost saving, if any, Vintech will realize by buying the part.

Explanation / Answer

make

buy

net income increase/(decrease)

variable manufacturing costs

102000

fixed manufacturing costs

17000

purchase price

107100

-107100

total annual cost

119000

124100

-5100

The decision should be to make product.